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Trade Of The Week: LITT Long on JHX

September 15, 2021

Trade Of The Week: LITT Long on JHX

James Hardie Industries (JHX) is building up buying pressure and is ready to make another breakout move. The stock is trading around the $54.50 level and has seen 4 days of green candles. If the market can break through this resistance level it will be ready to set new all-time highs.

James Hardie Industries (JHX) is building up buying pressure and is ready to make another breakout move. The stock is trading around the $54.50 level and has seen 4 days of green candles. If the market can break through this resistance level it will be ready to set new all-time highs.

Source: Implied Volatility

The stock is likely to be flagged by our trade scanners for a LITT Long trade in the coming days. To follow the LITT Trading strategy, you will enter the position when the following criteria have been met:

  • The share price is above the 50 Day MA (red)
  • The 50 Day MA is above the 200 Day MA (blue)
  • The 50 Day MA is trending upwards
  • The share price is above the 52 week high
  • The ADX is above 20

JHX has good market maker coverage which results in tighter spreads.

Source: Implied Volatility

A ‘LITT Long’ is an at-the-money bull put spread. This is a credit spread which means we receive an upfront premium for entering the position. It benefits from time decay and reduction in volatility. This is a bullish position, so we are hoping for the stock to rise before expiry.

Enter position:

Short JHX 57.00 21 Oct 21 2021 Put (A)
Long JHX  55.00 21 Oct 21 2021 Put (A)

As per the LITT Trading rules, we will select options series with 30 to 60 days to expiry. We will select monthly expiries for greater liquidity.

Source: Implied Volatility

Source: Implied Volatility

Manage position:

The great thing about the LITT Long trading strategy is that you have room to move if the market turns against you. Based on the LITT trading rules, if the stock experiences enough selling pressure to pull back below the support level at the 50 Day MA, you can manage the trade by closing out the sold put and remain in a long put position. This allows you to profit from the falling share price.

And if the market then rebounds, pushes back above the 50 Day MA, and trades above recent 5 day highs, you can repair the trade by re-entering the sold put position.

Just be aware that the 50 Day MA ($49.43) is a long way down in JHX’s case. You may decide to set a different support level as the trigger for managing the position.

Exit position:

This is a longer term trading strategy, where the best outcome is for the position to expire worthless allowing the trader to keep the up front premium. We will be hoping for a jump towards the $57.00 level over the next 4 weeks. If the stock reaches $58.00 before expiry, you can close the position and keep most of the upfront premium.

For further information on using the Implied Volatility platform you can follow this link, here.

To try trading for yourself using the most powerful Options Trading technology in Australia, click here for a trial for our Implied Volatility platform

We wish you good luck with your trading, and as always if you have any questions, please feel free to contact our trading desk on (03) 8080 5795. Please note, we provide General Advice only. 

Past performance is not a reliable indicator of future performance. 

The opinions expressed in this article are our personal views. 

Trading options is not suitable for everyone. There is a risk that you can lose more than the value of a trade or its underlying assets. You should only trade if you are confident that you fully understand what you are doing. If you are thinking about acquiring a financial product, you should consult our Financial Services Guide (FSG) at www.reachmarkets.com.au first. 

Any advice provided by Reach Markets including on its website and by its representatives is general advice only and does not consider your objectives, financial situation or needs, and you should consider whether it is appropriate for you. This might mean that you need to seek personal advice from a representative authorised to provide personal advice. If you are thinking about acquiring a financial product, you should consider our Financial Services Guide (FSG) including the Privacy Statement and any relevant Product Disclosure Statement or Prospectus (if one is available) to understand the features, risks and returns associated with the investment.

Please click here to read our full warning.


General Advice Warning

Any advice provided by Reach Markets including on its website and by its representatives is general advice only and does not consider your objectives, financial situation or needs, and you should consider whether it is appropriate for you. This might mean that you need to seek personal advice from a representative authorised to provide personal advice. If you are thinking about acquiring a financial product, you should consider our Financial Services Guide (FSG) including the Privacy Statement and any relevant Product Disclosure Statement or Prospectus (if one is available) to understand the features, risks and returns associated with the investment.

Please click here to read our full warning.

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